Thursday, 6 December 2012

The independent inquiry into the cancelled West Coast Main Line franchise competition has concluded that the project failed because of an accumulation of significant errors related to inadequate planning and preparation, complex organisational structure, and a weak governance framework.Transport Secretary Patrick McLoughlin asked Sam Laidlaw, the chief executive of Centrica and a non-executive DfT board member, to conduct an urgent investigation following the discovery of unacceptable flaws in the procurement process that led to the competition being cancelled on October 3.

His final report, published today by the Department for Transport, finds that:

The DfT used flawed and inconsistent methodology when guiding bidders on the amount of risk capital (known as the Subordinated Loan Facility) they would need to offer to guarantee their franchise against default (Inquiry report paragraph 4.31, p22);

The Subordinated Loan Facility figures resulting from the flawed methodology were then varied in a way that contravened franchise competition rules (3.4, p11);

Ministers made the original August 14 provisional contract award without being told about the critical flaws (2.12, p8) and having been given “inaccurate reports” (3.8, p12).

But the Laidlaw Inquiry also concluded that:

The report’s recommendations to strengthen accountability and governance structures “if acted upon quickly and effectively, will help to restore confidence in the DfT’s ability to conduct effective rail franchising and procurement” (paragraph 8.6, p79);

While there were inconsistencies in the way First Group and Virgin Trains Ltd were treated during the franchise process, the report finds that there is no evidence of a culture of bias against Virgin at the DfT (paragraph 2.6, p7);

There is nothing in the report to suggest that the flaws discovered in this franchise competition exist in any other DfT procurements (paragraph 8.3, p79).

The DfT is today publishing its formal response to the report which commits the Department to implementing swiftly a series of actions that will enable it to resume the franchising programme, with the confidence of the rail industry, as soon as possible.

These include:

Ensuring future franchise competitions are delivered at a good pace based on sound planning, a clear timeline, rigorous management, and the right quality assurance;

Creating a simpler and clearer structure and governance process for rail franchise competitions, including the appointment of a single director general with responsibility for all rail policy and franchising;

Ensuring we have the right mix of professional skills, in-house, and where necessary from professional external advisers.

Sam Laidlaw said: “Building upon and confirming the conclusions from my initial findings, the final report provides an in-depth analysis of the events that led to the flaws whereby the InterCity West Coast competition was cancelled. Alongside this I have also made a series of recommendations for the future.

“I have explained in detail the technical nature of certain errors, specifically around modelling flaws and the Subordinated Loan Facility sizing process. In addition, the report outlines an accumulation of contributory causes including a lack of transparency, inadequate planning and preparation, as well as a complex and confusing organisational structure with weak quality assurance and insufficient governance oversight.

“While it is clear that a number of serious and regrettable errors have occurred, I believe that if acted upon quickly and effectively, my recommendations will help to restore confidence in the DfT’s ability to conduct effective rail franchising and procurement.”

Patrick McLoughlin said:

"The final report from the Laidlaw Inquiry makes extremely uncomfortable reading for the Department. It has identified precisely what went wrong, revealing serious failures, as well as offering us a number of sensible recommendations to put things right.

“We will not allow these mistakes to be made again and the Department is determined to ensure all future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance.”

He added:

“Sam Laidlaw has delivered an uncompromising report that offers us a way to face up to a number of shortcomings and I would like to thank him and his team for producing these findings with such diligence and speed.”

DfT Permanent Secretary Philip Rutnam said:

“There is no question that this has been a serious blow for the Department and I am determined that we learn everything we can from this episode.

“We will implement all of Mr Laidlaw’s recommendations, and go further, to ensure we have the right set of skills, support and training to ensure failures like this do not happen again.”

4. The Laidlaw Inquiry’s final report is only part of the work the Department is doing to review its rail franchising policy. It will also take into account the forthcoming NAO report into the lessons from the cancellation of the InterCity West Coast franchise and the conclusions of Richard Brown’s review of the future of the rail franchising programme, due to be submitted to the Secretary of State by the end of December.

So Virgin gets a 23 month extension to the InterCity West Coast franchise.

Revenue and cost remains with DfT (so risk transfer went well then).

Virgin to get a guaranteed 1% of revenues under 'management contract'

The mad midi franchise of two years that was to follow this extension will now not take place.

Here the DfT press release...Virgin Trains to run improved West Coast services

Rail passengers will experience better services including 28,000 more seats a day under an agreement announced today for Virgin Trains to continue operating rail services on the West Coast Main Line.The new franchise agreement will run for up to 23 months after which the West Coast Main Line will be let under a long-term franchise.

It coincides with the early completion of a Government-backed deal to roll out 106 new Pendolino carriages, providing passengers with four new 11-carriage trains and lengthening 31 existing trains from nine carriages to 11. A new hourly service between London and Glasgow will also be introduced.

Patrick McLoughlin said:

“We are determined to ensure not only that passengers continue to experience the same levels of service they have in the past, but that services improve. There will be a new hourly service linking Glasgow and London and we will also work with Virgin Trains to explore other service improvements.

“I am also extremely pleased that passengers will benefit from up to 28,000 more seats daily thanks to the delivery of 106 new Pendolino carriages onto the West Coast Main Line which has happened on budget and ahead of schedule.”

Passengers travelling on Virgin Trains will also find it easier to claim compensation if their train is severely delayed thanks to plans for Virgin Trains to introduce an improved Passenger’s Charter incorporating a Delay Repay scheme from 1 April 2013, subject to agreement.Notes to Editors1. The 23 month franchise will run from 9 December 2012 until 9 November 2014 after which the West Coast Main Line will be let under a long-term franchise. The Department for Transport (DfT) will be able to shorten this period by up to six months if a subsequent franchise can be let on a shorter timescale.

2. The franchise will operate as a management contract with both revenue and cost risk being borne by the DfT. In return Virgin Rail Group (VRG) will receive a margin of 1% on revenue for operating services. The franchise also makes a provision for the DfT and VRG to agree revised commercial terms that would see VRG take greater revenue and cost risk in the period to 9 November 2014.

3. The 106 Pendolino carriages project has been delivered on budget and ahead of schedule and has resulted from a successful collaboration between the Department for Transport, Virgin Trains, Alstom, Angel Trains and Network Rail.